Mervyn’s Bankruptcy Case Reaches Settlement

All claims against the defendants, the group of investors who acquired the chain from Target Corp. in September 2004, will be released.

SETTLEMENT IN MERVYN’S BANKRUPTCY: Creditors in the Mervyn’s retail bankruptcy have reached a $166 million settlement of their claims against a group of investors who acquired the chain from Target Corp. in September 2004 for $1.65 billion.

Court documents were filed late Friday in a Delaware bankruptcy court detailing the settlement, which is still subject to court approval. According to court papers, the settlement releases all claims against the defendants. The settlement does not include any admission of wrongdoing.

Among the named defendants who were part of the buying consortium were real estate investment firm Lubert-Adler/Klaff, and two private equity firms, Cerberus Capital Management and Sun Capital Partners.

Mervyn’s creditors alleged that the consortium transferred certain real estate assets out of Mervyn’s that ultimately led to the retailer’s insolvency since the chain then had to pay higher rents following the transfer. In court documents, the defendants said that Mervyn’s was adequately capitalized at all times and that the rents charged were set at fair market value.

Mervyn’s filed for Chapter 11 in July 2008. At the time of the filing, the $2.5 billion moderate-price regional department store chain was impacted by a consumer spending pullback following the housing implosion in California and the Southwest, as well as rising gas and food prices and job cuts. Mervyn’s has since liquidated all operations.

Cooley LLP represented the creditors in the Mervyn’s case. The settlement does not include Target, which was also named a defendant in the lawsuit. Target in 2009 filed a motion to dismiss the lawsuit, which was denied. The discounter filed an appeal, which is still pending, according to court documents filed in the Delaware bankruptcy court.